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Banking Update - Australian Residential Mortgage Lending – Housing Prices – 1 August 2015

Australian Major Banks’ response to the increased capital requirement of several billion dollars each against Residential Investment Property Lending (approximately 30% of Residential Mortgage Lending Portfolios) has been to raise variable investment interest rates by around 27bp-29bp. Whilst this is possibly only preliminary action, to Property Investors this is a relatively low additional cost. Against possible 5%-10% property price gains per annum over the medium to longer term, to date this is an insignificant cost, leaving net marginal 4.7% - 9.7% gain per annum. Would this change demand for Australian Residential Property, when say Chinese investors have seen Australian House prices decline in Yuan-Renminbi terms by 15% - 20% in the last 12 months? I would say not. Therefore it would be unlikely to have the desired effect of reducing investor appetite. It may however increase security of the Australian Banks Housing lending portfolios with the larger capital buffer, particularly in combination with any relevant macro-prudential lending controls and other Basel III related APRA capital requirements.



Sure they’ve gorged themselves on Residential Investment Property lending, to the extent say Westpac resembles more a Savings / Housing Lending Bank than a Commercial Trading Bank, but contrary to some popular opinion, the raising of interest rates is a correct and logical Banking response to the increased capital requirement on a specific business component.

Westpac was slower to raise the relevant interest rate given this authors expectation that it is deficient in its Computing Systems on a number of fronts. In this instance it was unable to distinguish between the owner occupied versus investor components of its Residential mortgage portfolio, something I would have thought APRA might have been aware of and been seeking Banks / Westpac improvement on.

The smaller AMP Banking has raised the relevant variable interest rate by 47bp, probably reflecting the higher concentration of Residential Investment Property lending in its total loan portfolio. It represents only 1% Banking market share at $3B of loans. It has also proposed a self imposed moratorium on Residential Investment Property lending until later in 2015.

APRA has indicated a preference for a limit of 10% growth in Residential Investment Property lending. The latest moves on capital should encourage this but again the attraction of Residential property to investors is strong as seen above in Chinese currency terms. The strength of the Renminbi and its Purchasing Power, replicated across the US in USD terms and probably similar in Indian Rupee terms, combined with the weakness in AUD, sustain this attraction. In the case of China, the state of its own Residential property market in terms of lack of affordability (perhaps worse than Australia), along with Equities Market volatility, add to the attraction of such assets as the Australian Residential property Asset Class. In fact there has been a $USD 800 Billion capital outflow from China in the last 12 months. Obviously not all of this is to Australia, but Australian Government encouragement of foreign investment is probably a case of ..”be careful what you wish for,” and it certainly says something for future medium to longer term price trends

At the same time Australian Building Approvals showed a decline in Residential non-housing approvals of 20% for June 2015, but retained 16% growth in the last year. Strong growth by anyone’s measure but I don’t believe increased supply like even this, dampens the likely medium to longer term (beyond say one year) Residential property price outcomes.

Capital Requirement

The range in increased capital required by Australia’s Major Banks through increased Investment Property lending Risk Weighting is approximately $2.3B - $4B, with ANZ at the low end and Westpac at around $3B. It is not insignificant and in combination with general Basel III and Australian Financial System Inquiry recommendations as recently espoused by APRA, represents large amounts of capital, albeit capital which may become accessible at least in part through international debt markets, as well as being addressed by asset sales and dividend plans etc.

Foreign Exchange - FX

Talking of Westpac and Computing Systems as well as Disruptions to Global and Australian Banking other than Basel III and capital requirements, Banks generally operate the FX Markets, in provision to all levels of Banking inclusive of Business Banking. The emergence of Non Bank Foreign Exchange Broking / Trading online, and some degree of Regulatory focus on these markets (eg US – Proprietary Trading limitations, US / EU / UK Market Participant Behaviour), potentially disrupts Banks income sources. These have typically been Trading incomes, exchange rate surcharges and various fees. Retail and SME Access to spot rate and alternative – Non Bank avenues to payment and funds retention, potentially, and perhaps should, Disrupt Banks FX activities.

The shaving of exchange rates on offer even up to Corporate level by Banks is extensive. Further, Transfer and Transaction fees charged by Banks are numerous and significant. Using Westpac as an example, the Corporate rate offered – AUDUSD as identified on its Corporate Banking web-page was recently 0.70 – at the time the spot rate was 0.74, a 6% surcharge. The Bank would also charge a flat Transfer fee in relation to any transfers conducted and I believe a latest initiative is to charge a 2.9% transaction fee as well on overseas payments. I find this incredibly non-competitive, when I, at a Corporate-SME, Personal-Business or Personal level can have access to spot rate transfers, and through Non Bank platforms. I believe they potentially risk pricing themselves out of a good proportion of at least FX transfers and payments. In addition they (Westpac) potentially need Technology - System / Platform upgrade to be able in C21 to provide Retail, Business and Corporate customers alike, access to more competitive on-the-spot rates at more competitive cost. Why in 2015 Bank / Westpac customers can’t be given access to spot rate or approximately spot from branch or phone with systems linked to FX dealing, is largely beyond me. A 6% rate surcharge alone is greedy verging on usurious.

Andrew D Turner

Andrew D Turner   B.Ec    F Fin

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Australian Banks - Preview Of Forthcoming Aus Banks End 2013 Review

The Sector has been clearly over-priced, but for obvious reasons. There ain't that much else in Aus of Quality;

And I believe quite categorically, Aus Major Banks are now Quality Businesses with Quality Management;

Pricing has unwound a little in the last week but basically Aus Bank Investors are paying too much for the

Assets @ generally 2x and up to 2.7x Book Value when

ROE is 14%-18% and could easily be
14% average,

implying 1.5xBV. However I don't see this in itself as a Sell Signal. Dividend,

lack of alternatives and

excess system liquidity, remain supportive. Although maybe not so the Monetary “Tapering Effect” and rising

long term interest rates. I prefer those Major Banks that have been under-rated...........................................................................

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X - Latest Forex Targets - adt_fx weekly - @adt_fx -

#fx #forex 13 Dec 2013 Close $EURUSD 1.374 $GBPUSD 1.629 $AUDUSD 0.896 $NZDUSD 0.826 $USDJPY 103.22 $USDMXN 12.88 $USDINR 62.12 $USDPHP 44.14

#fx #forex Currency Pair Targets Key:  S=Short, L=Long, N=Neutral.  (S or L or N / Target).  Target Average approx 6 weeks unless otherwise stated, but broadly 1-6 months.

#fx #forex Targets:  $EURUSD (N / -), $GBPUSD (L / 1.68), $AUDUSD (S / 0.85-0.88), $USDJPY (L / 105), $NZDUSD (L / -), $USDMXN (S / -)

#fx #forex Targets - Cross Rates: $GBPJPY 168 (L / 176), $NZDAUD 0.92 (L / 1.00), $GBPAUD 182 ( L / 2.00)

Australian Banks - Full Year / Q3 June 30 Results - 21 August 2013

NAB – the Anglo-centric Australian Bank now trying to find its place in the Asian 21stC, has interesting current points of Leverage – 1. Aus Business Banking; and 2. UK. The latter being more interesting given at least at present the UK has arguably the strongest economic momentum of anywhere in the world.

The latest – Q3 Result saw further significant run-off in UK Commercial Real Estate portfolio – £5B at March 31 to £4.4B at June 30 and £3.9B at August 20. NAB had a Q3 Loan Loss Charge of $489M down only 10% - still significant leverage.  Great Western in the US was slightly improved – reduced Expenses and Loan Loss. Australia saw strength in  Personal Banking.

#Aus #Banks Aus Major Banks (2013 (P/BV / ROE)) – NAB 12.2%, ANZ 12.5%, WBC13.4%, CBA 14.4%. 2013 Div Yield - NAB 5.9%, WBC 5.9%, ANZ 5.6%, CBA 5.3%

18 Aug $ Q3 - 9mths ytd $4.8B +11%. Basel III T1 10.1%, Exp/Inc 44%, NIM 2.2%, ImpAss/L&Adv's 1.0%, Prov's/ImpAss 33%, ROE 15%, P/BV 2x

15 Aug  FYr $7.68B +8%, Div $3.64 - Div Yld 4.9%. T1-Basel III 11%, Cost/Inc 45%, NIM 2.13% (+4bp), Imp Assets 0.9%/Loans, P/BV 2.6x, ROE 18.4%

Andrew Turner

adt_fx Weekly Review & Outlook -   10 August 2013  -  Vol 1 #3 

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Not to be taken as Recommendations. This is purely a Review of  Economics and Market Assessments made in the process of conducting Personal (biz - unincorporated) and Corporate (com - incorporated) Business including FX Trading. It may include Economics, Equities, FX and Commodities Market Reviews and Comment regarding individual Securities in any of those Markets.

I’m formerly a prolific, passionate and rated Bank Equities Analyst. So prolific (writing and analysis), passionate and rated that many years on from last properly performing this function, the skills and practices of it can flood to the fore without me thinking. Accordingly I still conduct some Bank Equities trading function. I also have some skills and history across Macro – Economics and Econometrics – Quant, which I also have some passion for. Presently I am focussing on Currencies. I thrive on the breadth and type of influences over FX and the two worlds – Bank Equities and Foreign Exchange Rates, are not too dissimilar. They both involve Subsidiaries, Balance Sheets, Profitability and Management, only with FX it's Countries, their States, Provinces or Prefectures, Financial Accounts – Economy/s, Capital Account, Current Account, Trade Account, Budget, Working Capital, Cash flow, and regarding Management - implant also Central Bankers and Politicians. The intent in either regard is to generate Profitable ideas and conduct Profitable Investment & Trading. So that is the background with which I presently write adt_fx Weekly, which I publish to website at least once a month, and ambitiously - weekly.

General Theme/s

Refer below - adt_fx Weekly Review & Outlook - 28 July 2013 or to the following attachment for Broad FX Themes.

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To Taper or Not To Taper. It all has become a little Shakespearean in proportion hasn’t it. Having said that,  I can’t agree with broad criticism of the Fed. US Economic trends are presently a little difficult to fully determine and for example dissecting GDP numbers makes for a real lesson in Rubber production. Further regarding criticism of the Fed, if things had been left to market forces and Private Sector through the last four years we would still be languishing in Global Depression. So I see the Choice as having been Dangerously Excessive Liquidity or Global Depression; Pretty easy Choice for me.

Back to the point. I think in the context of difficult to properly determine economic trends or at least strength thereof, not the least confused by weaker than expected NFP figures, we have shifted back from expectation of broad based USD strength to a situation of question marks over EM, and more general emergence of growth through the entire Developed World perhaps excluding the Developed Worlds’ Commodity Producers. To that end I would now be looking at USD on a case by case basis. Meandering to up EURUSD in short term, possible ongoing strength in GBPUSD on the basis of UK economic trends, and a tendency to recovery in USDJPY from recent weakness on the back of slow Japanese economic recovery and QE commitment.


Perhaps somewhat surprisingly, emergence of signs of EU economic recovery, have buoyed the EURUSD. Inferior economic strength even by trend appears to be offset to a large extent by EU strength in Capital and Current Account at least on a Gross (German) basis. We wouldn’t diverge from this view, at least in the near term, and as expressed in this reports previous issue, to do so and attempt to trade EURUSD short is possibly too much Hard Work. EU, German and French GDP numbers this week may add further light on EU economic recovery and in particular on a relative basis v USD.


The UK to my mind is presently exhibiting the strongest economic momentum in the world. However, the state of the UK economy as a base is low; Tri-Deficits Syndrome - Budget, Trade and Current Account Deficits of some note and GDP still 3% below 2008 high-point. The new Governor of BOE is settled in and reasonably firm signals on QE peak consistent with quite broad economic recovery, more than just signals, have developed.

Following some confusion through May – June economic data when residual weak May data overlapped stronger June economic data, the UK economy has begun to exhibit not only strength in most Purchasing Manager Indices but also Production and Order Books.

Confirmation of Consumption and Retail Sales Recovery is being sought by the Market, but it is expected based on Industry – Anec dotal evidence. We still have under consideration the GBPUSD 1.65 target based largely on PPP (Purchasing Power Parity). In the very near term however there would appear to be potentially quite Significant Resistance at the 1.555 level  relative to the current rate of 1.550.


Evidence of Japan economic recovery has eased off again. Coincident and Leading economic indicators have declined on latest releases and growth and inflation targets have been stretched out to 2015 and 2016. Government, and others, have extended the 2% inflation target out to achievable by 2015-16, while growth recovery as well as recovery from deflation have extensively been described as moderate. Nonetheless USDJPY remained weak through most of last week. I expect some sort of USD recovery against JPY but if it weren’t for the BOJ QE commitment I would be expecting some further revaluation of Yen.

AUD – The Little Aussie Battler

The “Battler” pulled up its boot straps on the RBA rate decision (Tuesday 6 Aug) – decrease 25bp, and rallied through the rest of the week. The cut had become a virtual certainty as the market eventually cottoned-on to the previous months’ debate and the parlous state of the economy. The market perception of the RBA comments on the rate cut for August, along with subsequent Statement on Monetary Policy (Friday 9 Aug), however, encouraged buyers on the expectation rate cut prospects have diminished. In the context of at least Retail record short positions on AUDUSD, the prospect it is a little oversold (fall from 1.058 – 13% since April and 14.7% since January calendar ytd high of 1.079), a stabilisation in commodity prices and in fact higher AUD commodity prices (eg. Fe AUD144 p/t and not far from 2013 Feb AUD155 peak), along with favourable interest rate differentials, AUDUSD has rallied to 0.92 from a low a little under 0.885. This is despite what I regard as generally very weak (appalling, to be a little emotive!) core economic trends.

I have found particularly interesting the Business Sector Performance indices within Australia. Nearly all Non-Mining readings have been or are, not only sub 50 and therefore in decline but around 40 – European Basket Case levels. Latest readings from AIG - Sector Performance Indices are as follows:

AIG – Australian Sector Performance Indices  - July                                

                              Latest             Previous

Manufacturing    PMI      42.0                 47.7

Services              PSI       39.4                 41.5  

Construction      PCI       44.1                 39.5  


I thought my reading of the RBA interest rate decision as tweeted and as follows was more appropriate than the markets expectation of diminished rate cut prospects:

Andrew D Turner adt @adt_fx               6 Aug 2013

#RBA 25bp rate cut.........possible further $AUD decrease facilitating rebalancing of economy. Inflation & growth ok for rate cut.........Continue to monitor

Australian Manufacturing took another dip based on PMI in July. Australian Manufacturing accounted for 36% of National Income in 1970. It is now 8%. Other notable Aus economics in the last week have included Unemployment for July where Unemployment rate was steady at 5.7% but employment fell (Ft -76.7K and Pt -3.5K), Unemployed numbers also fell (Ft -7.1K and Pt +1.4K) and Participation rate fell to 65.1% from 65.3%; All conspiring to leave a steady Unemployment rate – Total 5.7%, Ft 6.0%. I don’t like Australia’s Labor market trends especially in the context that the Social Services Sector has been the major source of any growth. Significant Non-Mining employment has been lost in the last two years through Currency strength, General Business Administration Costs and various System Rigidities and the associated Business and in some instances Industry closure.

Trade deficit was stable around a $0.6B surplus in July. Some near term prospect of this being sustained or expanded  exists, beyond which commodity prices will continue to dictate trend offset by any import growth induced by any recovery in non-mining fixed asset investment and any housing / domestic consumption improvement. Trade Deficit for 2012-13 was $9.4B. The Current Account however remains in Deficit at a rate of around $50B p.a or -3% of GDP. Net Foreign Equity stands at $121B and Net Foreign Debt at $749B , as measured by the Australian Bureau Of Statistics.

Some lending figures have been very recently a little more positive, including Housing lending and Construction lending.

Accordingly the near term prospect – 1-2Days, is for the AUDUSD to find its target of 0.934. Beyond that, my personal view is that the recent China Trade etc influence is overstated and that with the ordinary core economics, even in the context of a probable change of Government in 4 weeks, the Medium Term trend is down and would lead to an under-scoring of 0.85. Interest rate differentials are not expected to work in AUDUSD favour over the next 12 months or so, with expectations for further rate cuts. Of 27 economists the low expectation is 2.00 from 2.50. For the remainder of this calendar year a further rate cut can logically be expected in November following Federal Election and release of September Quarter CPI. Further, the US trend is likely in the opposite direction – narrowing differentials. However nearer term, again with the extent of recent decline and a market desire to believe in a perpetual China Economic Miracle, regardless of Debt, Corruption and Propaganda (especially economic data releases), upward momentum may push AUDUSD through Resistance at 0.934; All the more Shortable on my perspective.


The Canadian Dollar took a slight dip at the end of last week on weaker employment data from July but then recovered and advanced along with other Developed World Commodity Currencies. Specifically Cad fell with an unexpected drop in jobs of 39.4K - 18.3K Ft and 21.2K, against expectations of a 10K gain, and June -0.4K. Participation Rate fell from 66.7% to 66.5% and unemployment rate rose to 7.2% from 7.1% in June. An interesting comparison here of Participation rate of 66.5% against 65.1% in Australia, probably partly explaining the higher Canadian unemployment rate against 5.7% (6.0% Ft) in Australia. Also an interesting status, similar to Australia and the US – that being the bemoaning of increased trend to Part Time employment with greater Pt composition of the workforce. In Aus this stands now at slightly in excess of 30%. The US is also reportedly over 20%.


Emerging Market Currencies saw some stability through slight rise (some +1%-2%) during  the end of last week and in particular a slight jump Thursday US trading around mid-day. This would appear to be in relation to Chinese Trade data and expectation of improving growth outlook into 2014.


Bank of Mexico downgraded current calendar year – 2013 – GDP Estimate from 3%-4% to  2%-3%, in line with current market expectations of 2.7%. GDP growth in 2012 was 3.9% Expectations are for 3.2% - 4.2% GDP growth for 2014 along with Inflation of 3.5% 2013 and 3.0% 2014. USDMXN traded in a narrow band around 12.5 – 12.8 through the week.


India is experiencing increasingly difficult economic circumstances. Accordingly in the context of QE Taper induced EM pressures, USDINR has seen strength and remains toward its recent highs, despite a slight INR rally late last week. India is in significant need of Structural Reforms, it suffers Tri-Deficit Syndrome – UK, US, MXN (slightly) also – being Government Budget, Trade and Current Account. These are -5%, -10% and -4.5% respectively. Mexico by comparison is -2%, -0.5% and -1.4%. Indias’ numbers are significant.

The RBI has announced efforts to support the INR as a result, with Cash Management Bill Sales of INR 220B per week. Further efforts are expected from RBI to support the currency. A number of commentators are quite pointed in describing Indias’ economic and social difficulties. Accordingly, despite efforts by RBI I would not expect any significant decline in USDINR beyond very short term RBI induced INR gains, and that natural existing market forces could well drive USDINR well higher.

Along the way through the last two years the Indian Government has also moved to curtail Gold hoarding by Indian’s with increases to the import tariff. As one of the worlds’ largest gold consumers, it’s probably worth taking a look at the Indian Rupee (INR) Gold price. The rise in USDINR from 45 in 2011, and 55 through 2012-13 and the recent QE Taper induced 10% surge to 61, has seen INR Gold Price outperform USD Gold price quite significantly, with interesting repercussions for Indian financial and social related Investment behaviour.

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Chinese Trade data on Thursday 8 August turned Commodity and Emerging Market Currencies on their heads a little. Despite a decline in the July Trade Surplus from $27.1B to $17.8B, import growth yoy of 10.9% (6.6% S.Adj?) and export growth of 5.1% was seen as expansionary. In addition China had record Iron Ore Imports in July, however at least one Industry Body in China warned of Fe prices being excessive relative to Chinese industry restructuring ambitions including the Steel industry which is experiencing losses. At this stage of proceedings, in the context of Chinese Debt levels (>2xGDP?), lack of understanding even in China of Local Government Debt, Banking Sector Trends, General Financial System Liquidity, Budget Deficit to GDP Ratio >2% with a ceiling of 3%, not to mention Political concerns,

I am not accepting of this being a continuation of the Chinese Economic Miracle. If anything I am more concerned we are not heading on a Very Fast Train toward the Chinese Economic Debacle. If not Hard Landing I don’t see an Easy Chinese Landing. All this in the context of highly dubious quality and accuracy of Chinese Economic data to the extent Dr Doom – Marc Faber, suggests Reported GDP in China is not actually 7%+, rather it is no more than 4%. This thinking leaves me to tend to discount slightly improved FAI, and Industrial Production data out of China last week as well.

Other Relevant Matters

Nothing To Report

Quotable Quotes & ScuttleButt

Nothing To Report

Latest Prices


EURUSD           1.334

GBPUSD           1.550

USDJPY             96.20

USDCAD           1.028

AUDUSD           0.918

NZDUSD           0.802

USDCNY           6.175

USDMXN          12.62

USDINR            60.86

Fixed Interest

USD             2 Year  0.31             10 Year  2.58

Ger               2 Year  0.17              10 Year  1.67

2 Year  0.34                 10 Year  2.47

JPY                   2 Year  0.11                 10 Year  0.76 

AUD                 2 Year  2.41                 10 Year  3.67


Dow                   15425

S&P500             1691

Nasdaq              3660

ASX S&P200     5055


Au                     1314    $/oz

Ag                      20.5     $/oz

Cu                      3.24     $/kg

Fe                      133      $/t

Oil – wti              106      $/bbl

Oil – brent           108      $/bbl

Commodity prices generally (Gold, Silver, Copper, Oil) remain in a modest Backwardation of 2%-5% - December Futures.

Week Ahead

             12 Aug   –      JPY  GDP Q2 qoq  0.9% Est         (1.0% Prev)

 -              JPY Industrial Production mom  June       (-3.3% Prev)

 -          JPY  BOJ Minutes July 10

 13 Aug -       USD Retail Sales    -0.1% Est       (0.4% Prev)

-               AUD NAB Business Conditions July           (-8 Prev)

-               EUR German CPI July yoy  1.9% Est           (1.9% Prev)

-          GBP CPI yoy July    2.8% Est        (2.9% Prev)

-          GBP CPI Core yoy July    2.3% Est               (2.2% Prev)

     14 Aug -        USD  PPI  July 0.3% Est                 (0.8% Prev)

-          USD  PPI Core July  0.2% Est                      (0.2% Prev)

-          EUR  French GDP Q2 yoy  -0.1% Est          (-0.4% Prev)

-          EUR German GDP qoq                 (-0.2% Prev)

-           EUR EU GDP  yoy  -0.8% Est        (--1.1% Prev)

15 Aug   -        GBP Retail Sales July mom 0.6% Est          (0.2% Prev)

-          GBP Retail Sales July    yoy  2.4%  Est        (2.2% Prev)

-          USD  Initial Claims  10 Aug  340K              ( Prev 333K)

-          USD Continuing Claims  3 Aug   3000K Est               (3018K Prev)

-          USD CPI  July  0.2% Est (0.5% Prev)

-          USD Core CPI  July  0.2% Est       (0.2% Prev)

-          USD Empire Mfg  Aug  5.0% Est                 (9.4% Prev)

-          USD Industrial Production  July  1.0% Est                 (0.3% Prev)

16 Aug   -       USD Housing Starts July  855K Est             (836K Prev)

-         USD  Michigan Uni Consumer Sentiment  Aug  85.1 Est              (85.1 Prev)

Andrew D Turner


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© Copyright  adt All Rights Reserved

Views expressed are generally my own. Where not I aim to acknowledge the original thought and its originator/s.

The Author uses data from:

Daily FX –

BK Asset Management –  bkassetmanag

Euromoney -

Financial Times –

Marc Faber –

Aus CPI  June Q 2013  –  28 July 2013

Australia’s June Quarter CPI came in at 2.4%p.a and 0.4% for the June Quarter. These figures were considered tolerable, being in line with target band and therefore not un-accommadating of further interest rate cuts.

Of more interest however was the main categories of price rises. Only the core Household life essentials - Housing +5.3%p.a, Health +6.6%p.a and Education +5.7%p.a. Then we have Broadband & All Business Management generally as the most expensive in world. Another big tick ? for ALP economic management I believe !

adt_fx Weekly Review & Outlook – 28 July 2013

Not to be taken as Recommendations. This is purely a Review of  Economics and Market Assessments made in the process of conducting Personal (biz - unincorporated) and Corporate (com - incorporated) Business including FX Trading. It may include Economics, Equities, FX and Commodities Market Reviews and Comment regarding individual Securities in any of those Markets.

General Theme/s

There appears to be a mid cycle re-balancing of Emerging Market – EM and Developed World – DW, economics induced by talk of QE Tapering atop the existing Capacity Constraints and socio-political and regulatory & economic Teething Problems that could well have been expected across EM. Again I would see this as entirely normal and not beyond the short to medium term to detract from the Broader almost Secular but at least Super-Cycle shift in Production, Productivity and Wealth from DW to LDW or EM. That begs the comment re Super Cycle. Commodities producers in particular have a myopic view of what constitutes the Super Cycle; That being it is all about Commodities prices. It is not and it is well beyond that, to the point of almost being Biblical in proportion – The Meek Inheriting the Earth. At the very least it is about a significant shift in Production, Productivity and Wealth on the basis of concepts such as GDP per person, Comparative Cost of Labor and General Cost of Production, that might be reflected in relative worldly positioning, the full cycle of which might need to be viewed over at least 200-300 years. It is almost as simple as Mean Reversion. Commodities and their prices are a side effect.

Either way, whilst EM Foreign Exchange may have lost some short to medium term appeal I believe there remains a broader theme to be revisited before long.

Foreign Exchange Markets have been two-directional – struggling to find direction or trend – coming and going without staying in either direction for long – skittish. I have found this to be the case in the last two weeks even beyond the most confused of weeks several weeks ago in relation to US Federal Reserve Meeting Minutes and other Commentary regarding QE Tapering – to be or not to be. If the last two weeks have been two-directional the worse week around Fed QE might have been termed multi-directional, if that is possible. Talking of which, this coming week brings more US Fed FOMC and further US GDP Q2 Reading #1. And by the way, I don’t blame anyone for the confusion caused resulting from Fed activity and commentary. The state of the US (and Global) Economy and the nature of QE in particular, leave us in the situation where market participants are receiving Meeting Minutes at a time when there is significant Conjecture and Debate regarding the State Of Affairs. I am surprised Fed Meeting Minutes are as polite and well mannered as they appear; Or do we get the Edited version? It is a case of effectively too much information for the market when there is too little definitive and conclusive on Conditions and therefore on Policy. Big Ben himself has actually been very consistent in his views and comments and I personally rate his timing to be excellent. In any case we have seen what Kathy Liens’ BK Asset Management appropriately termed High βeta FX.

In the mean while there is, from the immediate past week or so, confirming evidence of economic momentum rebuilding across the DW - EU, GB, Japan and the US. Accordingly EUR, GBP, and JPY have enjoyed stronger forces in at least the second half of July. USD remains a quandary.


The US has seen recovering economic data stronger and for longer than the rest of the DW. I would term it the best of the Basket Case DW Economies. However, the impact of QE and market clout of the Fed etc, has seen the USD, by my calculations, to be something less than the best performing DW currency. This remains the case. It would appear the EU experiencing a slower rate of Recession is more likely to propel the EUR than the modest but growing and improving economic and structural (energy and technology) circumstances in the US are likely to propel the USD.

Having briefly expected a more consistent recovery in USD earlier this month, I am now wary of market expectation and treatment of QE, tapering of QE and more traditional qualitative monetary policy, and the likely impact on currency markets.

Basically the USD is uncertain about rising and possibly doesn’t want to; The EUR does want to go up and only up.


The EUR behaviour is tough particularly if one, such as I, reads the economic and structural difficulties, along with longer term secular economic decline to be what it appears. At best the description – slower rate of recession appears most appropriate and the structural issue in force or emerging, of EU countries being nothing more than Labor providers to Germany or at least to German Capital is noteworthy. Nevertheless EUR has strength around at least USD, that I care not to argue with.


The UK has continued the economic gains that have been evident from at least the June data releases starting several weeks ago. Unfortunately there appeared some confusion and traps as the commencement of June data releases overlapped residual May releases. May was clearly less healthy. In the last several days however something changed – that being the GBP managed to find something more sustained in currency appreciation particularly against USD. Of the non-US DW economies the UK is probably showing the strongest recovery signs. Further the BOE seemed to put a halt to any QE expansion with some degree of unanimity.

There is supportive quantitative evidence suggesting GBPUSD rise can be sustained to levels somewhat higher than 1.54. Basic ppp modelling would indicate material rise.


While GBPUSD saw healthy rise, GBPJPY fell away in the face of perceptions of a recovering Japanese economy. The JPY is a little like EUR in that markets are friendly to it and want basically to push it up. I wrote several weeks ago, I would look to be short USDJPY but pending indications of the impact of economic policy (partly new) on Japanese economic direction. There is some tentative evidence of economic recovery but there is also a tendency for the market to overstate this. Example is the inflation data released in recent days which was boasted as a return to inflation in Japan. My reading is a little different and more tempered in outlook; That being that Core Inflation in June, month on month, was all of Zero Percent (0%) versus 0.2% in May. It actually fell – disinflation, at least without being Deflationary. By quirk of past an annual rise was recorded at around 0.4%.

In any event, the point is one would be wary about being short JPY at this stage of cycle. Expectations of the easy USDJPY Long and rising to 110 or 120 may be well overblown despite relative momentum in QE of Japan versus US and UK; But it is the latter re QE that would also leave me wary of being short USDJPY.

AUD – The Little Aussie Battler

The AUD finally won the week and finished on an upward tilt after gaining and then shedding once or twice through the last week or so in a range 0.899 – 0.93. A technical recovery, some sustained improvement in iron ore price (114 – 132) over the last three months), a levelling in other commodity prices, mixed feelings about a pre-election interest rate cut and so on, helping The Little Aussie Battler. I have mixed to negative views on this currency. I believe there will be further interest rate cuts as the economy faces an Australian Labour Party economic hangover as it usually does following several years of ALP economic mismanagement. There has been ample evidence for up to three years that the Mining Boom was not the answer for Australia. Policy makers ignored the limited national benefit it held let alone the detrimental effects it has had on the broader economy. Structurally the Australian economy has been noticeably weakened over the last six years. Reparation time and effort will be elongated and significant. I Do Not see the medium term trend for AUDUSD to be up.


The broader EM trends we have discussed above. Leave for the short term despite interest rate rises across Brazil, India, Turkey etc. These are required given various issues such as Capacity Constraints, Inflation, Capital flows in the context of Tapering talk, etc, and are not necessarily permanently currency supportive.


Having said that I reiterate our preference for MXN but not right at this pricing of around 12.6 USDMXN, let alone timing. Mexican GDP for May came in at 1.7%p.a in the last week, while in the last two weeks it was reported that Mexican unemployment rose from 4.9% to just short of 5.1%.

As with GBPUSD, USDMXN valuation is forecast with some ppp and GDP-pp modelling to be significantly  detached from current levels, indicating significant decline in USDMXN over the medium to longer term. In the short term however some Technical Analysis is suggesting USDMXN may revisit 13.0 and possibly higher.


Generally weak Chinese economic data, especially HSBC July Manufacturing PMI 47.7, against 48.2 expected and 48.2 previous. Other data similar trends and general suspicion as to quality and accuracy, let alone measurement technique and collection method of Chinese Data. Other measures re Lending Rate Floors etc of little real consequence. China.......yawn.

Other Matters Of Relevance

–  Central Banks – Bad Banks?

I personally find it interesting that Central Banks generally in their expanded Balance Sheet – QE modes are sitting on extensive Securities Portfolios. With the prospect of medium to longer term, if not short term, interest rate rises globally, they face Securities Trading / Investment Losses and or FX losses, and or Gold value losses. Some evidence of these potential losses which encouraged me to recently describe the Central Banks, potentially but partly tongue in cheek, as the Bad Banks of the 2000 Teens, were seen in early July RBA Balance Sheet and Trading losses ($5B for June – July alone), and Singapore Central Bank $10.6B loss for 2012-13. I expect there will be more to come of this nature if not in the short term then medium to longer term as interest rates rise.

-  Quotable Quotes

- from a Week that started with Great Expectations from Japanese Senate elections which fizzed, and had French MP’s re-visiting WWII:

UK Business Secretary – BOE policy makers are like the Taliban.

Latest Prices

EURUSD           1.3276

GBPUSD           1.5380

USDJPY            98.256

USDCAD          1.0273

AUDUSD          0.9262

NZDUSD          0.8076

USDMXN         12.670

Week Ahead

31 July   –       US    GDP Q2    Forecast 1.1%   Previous (1.8%)

US  FOMC      0.25%  /  Tapering – QE  Commentary

-        US   ADP Employment Change July     Est 175K-180K  Prev (188K)

  1 Aug     -       CNY Official PMI  Mfg July Est 49.8  Prev (50.1)

 -       CNY  HSBC   PMI Mfg July  Est 47.7  Prev (48.2)

 -       EU, UK, US PMIs  July

 -       BOE, ECB -  Central Bank Meetings – Monetary Policy  - Both 0.50%

  2 Aug    -       US   NFP    July   Est  185K   Prev (195K)

-        US   NFPP  July   Est  190K   Prev (202K)

-        US   Unemployment July   Est 7.6%   Prev (7.6%)

Andrew D Turner

Web :


© Copyright  adt   2013    All Rights Reserved

Aus Unemployment - Full Time 6.1% June 2013  –  12 July 2013

The Australia’s Unemployment rate rose again in June to 5.7% as the Participation rate rose from 65.2% to 65.3%.

Employment increased in the month however only across Part timers which rose 14,800, while Full time employment fell by 4,400.

People Unemployed rose by 23,700 to 709,300. Full time unemployed rose by 16,900 and Part time rose by 6,800. So it looks like something is on the Up in Australia although the nation increasingly becomes Part time. This last five years marks a transition of Australia to Part time status.

The Full time unemployment rate now stands at 6.1%. Part time unemployment  stands at 4.9%. The percentage of the workforce in part time employment is slightly greater than 30% and growing.

At over 700,000, the total unemployed is possibly the first time at this level and  at record levels for Australia. The National Labor Market now carries a few more records that have been chalked up under the ALP Government.

Andrew D Turner

adt  fx  -  Week in Review & Outlook  -  7 July 2013

Not to be taken as Recommendations. This is purely a Review of  Economics and Market Assessments made in the process of conducting Personal (biz - unincorporated) and Corporate (com - incorporated) Business including FX Trading. It may include Economics, Equities, FX and Commodities Market Reviews and Comment regarding individual Securities in any of those Markets.

EU / UK / US

EUR   /   GBP

 BOE & ECB  - Confirmation of Ongoing Monetary Stimulus

    -       GBP & EUR weaker

 Germany  Mfg data weak (factory orders) after ok retail sales. Ge mfg affected by weak China trends.

 US strong employment esp NFP data with latest month increase and upward revisions to previous 2 months.

 Expect more of same -  EU mfg / economy v US & ->  EU monetary stimulus v  US  Tapering into September & the rest of 2013-14.

 EUR held up last 12 / 3 / 1 months, relative to other non US currencies. Possibly due partly to EMU Bank funds transfer - repatriation following net foreign asset sales. Expect ongoing decline v USD and  catch up on decline at some stage. 

 EURUSD    - fundamentally weak

                      - technically - Weekly in decline. Daily turning back down. 

Both fundamental and technical stances support medium to longer term decline EURUSD.

Target potentially 3 yr low of <120

GBP perhaps surprising in the extent of its weakness given relatively strong UK economic signs especially relative to EU.

Other Currencies

 AUD very weak – RBA  - quip??? Re RBA deliberated a long time on 2nd July b4 leaving rates unchanged. Expect this may not be entirely a quip, in which case after cutting 25bp in June, nearly cut again in July and would seem almost certain therefore to cut again in August - 25bp ( and again later in 2013 ).

    -       Commodity price trends still weak – RBA commodity price index declined 20%+ last two months. Except +4-5% Fe last month to approx 122 p/t.           -       Inflation under control pending assessment of impact of recent currency adjustment.

AUDUSD target medium term 85.

JPY very weak  -  monetary stimulus – QE & perhaps still mixed economic signals.

USDJPY target 110+ medium term, pending economic trends with prospect of strengthening economy?


China  - flat to down economic data

    -       Mfg PMI decline

    -       Services PMI flat to slight growth

Emerging Markets

Growth concerns - China /  EU, have diminished near term outlook for most Emerging Market economies. Some teething (political and economic) problems have evolved in some and economic pressures have evolved in others - typically inflation, other supply side issues / constraints and or inadequate institutional infrastructure in the form of regulation, process and control. These economic pressures have been present in China inclusive, to the point of Credit Squeeze and desire to stress test. Despite this Emerging Markets thematic, I favor Mexico (MXN) at the right price-point, as having healthy economic trends almost across the board and being able to leverage US recovery.

Prices at time of Writing

EURUSD    1.2829
GBPUSD    1.4882
USDJPY     101.19
AUDUSD     0.9054

USDMXN    13.077

Andrew D Turner

ABN   : 59 089 720 426

Web   :


Australian Business Headlines - 24 May 2013

Alarm bells sound as Ford Australia hits the skids - Herald Sun
BILLIONS of dollars will be sucked from the Victorian economy as a consequence of Ford's retreat, casting a fresh pall over the state. And the carmaker's decision to cease production will weigh heavily on consumer sentiment and put upward pressure on the ...

Aus Unemployment April 2013 released 9 May 2013:
Unemployment rate 5.5%, Full time 5.8%. Job Additions including increased participation approx 70k. Swings in job additions of approx 70k in each of the last three months. Part time employment increased to 30.1% of total employment from 29.7% 12 months ago.

Victorian full time unemployment rate approx 6.5%, total 6.2%; Tasmania 7.5%; WA 5.2 % up from 3.5% ten months ago.
Interesting data reflective of an economy that has been deteriorating for sometime and probably still will, consistent with a significant drop in imports in the last 3-4 months, along with other data including capital expenditure plans which have fallen off, without significant replacement of mining by non-mining. Is the non-mining outlook that sensational with AUDUSD >1.00? A replacement of mining growth with housing activity is not a healthy outcome either - export industry replaced by importing, non-productive industry, propelling housing prices and reducing housing affordability.
The seeds were sewn five years ago with an acceptance of a rising exchange rate and its effect on non-mining industry without contingency plan for sustaining various non-mining industry. There was however various Government plans for taxes to rub salt into the exchange rate and administrative cost wounds of various non-mining and mining industry.
What a cocktail of inept and disastrous Economic Management, more reflective of Household Economics than National Economics, and without regard for State Economic structural differences !
Andrew D Turner   (adt)

Australian Unemployment March 2013 -  Creeping Up  (14 April 2013)

Australia’s unemployment rate popped to 5.6% for March 2013 with declines in all categories. The participation rate, part time and full time employment all fell back from Februarys’ gains. Full time unemployment rate rose to 5.83%. Including the decline in participation approximately 75,000 jobs or jobseekers were lost from the Labour force in March. The Australian economy is not strong. Even more certainly, most Australian State economies are not strong, amidst their debt, production and employment concerns.

Notably, and reflective of the cost of doing business in Australia, administrative inefficiency, taxes and the direct and indirect exchange rate impact on certain industries and their competitiveness – manufacturing, transport, construction – Victoria has slipped on a range of measures including Gross State Product, to be the fourth largest State economy behind New South Wales, Queensland and WA. Tasmania, through its 2012 Depression has slipped to be of similar size to the NT and not even far ahead of the ACT.

Andrew D Turner (adt) (occasionally)

Victorian ALP Government Depression          12 March 2013

You have got to be ******* JOKING.

I'm ***king living on less than half the ******* poverty rate and these ***kers see my website which is just a ******* head clearing blog aimed largely at points of Social, Political and Economic Distrust and Hatred -

I don't have any ***king money to be paying for ***king website development. I live on less than half the poverty rate without any prospect of study or training subsidisation, courtesy of the ALP Communist Federal Government of Australia, despite having paid $2 Million income and capital gains tax in Australia and having contributed to a number of high profile Government Deals. Well they can get a Deal out of me now !

The State I live in, being Victoria, is on the verge of its second Economic Depression in 20 or so years, courtesy Federal Government Economic Policies of The ALP Communist Federal Government.

It is the manufacturing and Industry Heartland of Australia. It is suffering well above National-State average Unemployment. It has been hit by ALP Communist Government neglect in deference to celebration of the Mining Boom, with little regard for exchange rate effect (still high and has been for two years Allan even though it hasn't risen further from 2011 - damage done), and little contribution to or leverage from the Mining Boom conducted or gained by the ALP Communist Federal Australian Government anyway.
A Depression being defined on at least one count by 4 Quarters of successive GDP Decline. We have had 3, with the fourth having 3 weeks to run ??

Ted Baillieu has exited as a scapegoat given other non-economic factors. Reality is however, Victoria, and SA, Tas and probably NSW give or take, are all suffering ALP Communist Federal Government Economic Neglect and NEGLIGENCE ! Hopefully this year these ALP Frauds will see the Forest for the Treeson !!

Australian States & Territories  -  Economic Status

State Final Demand - Seasonally Adjusted % Quarterly Change







Qtr - 2012






























 - Now







 - Prospect




















Dec Qtr 2012

Gross State



























Source : Australian Bureau Of Statistics - National Accounts - Publication 5206.0














© 2013




All Rights Reserved














Andrew D Turner (adt) (occasionally)

New Year Australian Economic Update       (20 January  2013)

Australia’s Unemployment: Notable business closures and staff lay-offs propelled Australia’s Full Time Unemployment figure through the second half of 2012. Having started the year around 5.2%, it ended the year at 5.6% in December, and significantly higher in several states.

Further lay-offs have been announced and or planned into this new year across Businesses ranging Vodafone, Boral, BlueScope and Monadelphous. Furthermore, Billabong is up for sale to US buyers, Qantas has had to team-up its overseas operations, Mine closures have been announced or planned, and very disappointingly one of Australia’s previous Export success stories – Casella Wines (Yellowtail) has been thrust into Loss ($30M in 2012) in large part due to exchange rate induced margin contraction. These are but a few examples where Businesses are being closed, reduced or replaced by Imports. Many cite the following reasons:

AUD Exchange Rate;


Compliance Costs;

Energy Costs; and

Labour Costs.

Australia had been cited through 2012 as one of the most expensive places in the world to do Business.

In response, the Victorian Government at least has introduced a Red Tape Commissioner.

Australia’s Balance Of Trade deficit rose through the second half of 2012 to around $2.5 Billion per month or an annualised $30 Billion, having started the year in surplus. Iron Ore and Coal prices having been largely responsible. The re-correction in Iron Ore prices since November ($85 per tonne back up to $150) will most likely reduce the deficit, however a return to surplus any time soon would appear quite unlikely.

Andrew D Turner (adt) (occasionally)

Australian Unemployment – July 2012 (September 6-7 2012)

5.1% - Really?

Australia’s unemployment rate fell from 5.2% to 5.1% in July. Looks good on face value; But.

Employed numbers fell;
Unemployed numbers fell;
Worforce numbers fell;

So the Participation rate fell..................The percentage of population in or seeking work;

Fewer employed, but not registered to unemployed; ie, lost their jobs and are at this point living off their capital. And a reduction in Unemployed but not in gaining employment. These people probably got sick of looking for a job. All this has probably been occurring for quite a while. So there is probably significant hidden unemployment in the Australian economy; That is, the unemployment rate is a lie; A statistical quirk......that needs attention to provide a realistic view of the Australian employment market.

And this is good? And this is what the Reserve Bank looks at to determine the Australian economy is not in need of an interest rate cut?

In addition, Australia’s full time unemployment rate rose for the fourth consecutive month to 5.5%.

In any event there are more critical issues to the Australian economy; ie, the iron ore price which has fallen dramatically and the fact iron ore accounts for 25% of Australian exports. Let alone broader trends in the Mining Cycle, including similar trends in coal.

Australia’s Balance Of Trade Deficit increased in July to a Seasonally Adjusted $556m from $227m in June, which in turn was revised from a $9m surplus. In July exports fell $728m and imports fell $399m, imports falling in broad terms in every major category except consumer goods.

Andrew D Turner (adt) (occasionally)

The Mining Cycle  (September 9 2012)

BHP – Profit Result and Writedowns

In August BHP announced asset writedowns which were then confirmed in their 2011-12 full year result which showed a 20% profit decline on 2010-11, in line with consensus estimates. The Group wrote down gas and nickel assets by $3.3b including its US Shale Gas assets by $2.8b, and Australian Nickel assets by $450m. This follows other mining company asset writedowns and BHP deferral of significant capital expenditure plans for reasons ranging from commodity price declines to mining project logistics.

 I find BHP to be exhibiting a well co-ordinated voice across CEO and Chairman and to be reacting responsibly to recent and emerging mining industry trends. Nonetheless there is a good chance at a broader industry or sector level that this mining cycle is ending like any other – the mining companies the last to see changing conditions and at the same time planning increased production and paying too much for mining assets, just as the cycle is ending and demand is stabilising if not declining, and mining commodity prices come under pressure.

 In this cycle you can throw in an Australian Government which even if ideologically acceptable (not to me) comes up with a mining tax - five years too late – very passé – just as the super mining profits are ending. Some further decline in mining company profits is expected in 2012-13. I personally find the commodity price assumptions inherent in profit forecasts for 2012-13 and 2013-14 to be excessive and optimistic to say the least.

 Furthermore, the China infrastructure build is possibly nearing a medium term hiatus relative to plans for increased mining commodities supply.

Fortescue Metals Group

Fortescue Metals also has announced what would appear an appropriate response to economic conditions.

It plans to cut staff operating costs with savings of approximately $300m. It is deferring its Kings deposit development and completion of its fourth berth at Herb Elliot Port, thereby reducing 2012-13 production and reducing planned capital expenditure in the same period by $1.6b to $4.6b.


Boart Lonyear

 As for Mining Services - Boart Longyear made the following comments with its half year result announce in the last two weeks

 “We are seeing a mining industry in a state of flux. Global uncertainties like the European debt, decreasing growth in China, restrictive financing conditions, and the upcoming US elections are driving our mining customers to be more cautious with their capital and direct it to their higher quality assets."

 “Against these uncertainties, commodity prices remain historically strong and inventories are relatively low. Our customers generally remain very profitable and have strong balance sheets. In some cases, we are seeing expanding demand at certain sites, especially in regions with lower labor costs, supportive governments and favorable logistics."

 “Given mixed market conditions, our visibility beyond the near term is very limited. As a result, we have updated our key assumptions for utilization, backlog, sales, and pricing for the second half of 2012. These changes result in a revision of our guidance for full year 2012, resulting in revenue and EBITDA estimates that are more in line with our 2011 results."

The stock fell from $2.38 to $1.11 in a week before rebounding to $1.35.


In recent days China has approved infrastructure projects entailing spending of around $150b across railways, roads, sewerage plants and water treatment. These appear to already have been in the pipeline although some have described their progress as a September Government initiated Fiscal Stimulus package. Their impact on commodities demand amidst current economic circumstances and relative to commodities supply is not entirely certain and not necessarily as stimulative as markets might expect.

Andrew D Turner (adt) (occasionally)


EU CATCH 22     (July 25 2012)

Moodys has put Germany on negative credit rating outlook on the basis of its debt levels. This is an incredible strategic issue for Germany and the EU. Presently the German Constitutional Court is endeavoring to determine the capacity and efficacy to fund further EU stability and bail-out accounts. It would therefore appear that on Moodys current stance the German Credit Rating is headed south. If Germany funds further EU bail-out and increases its own debt levels, what does Moodys do? Similarly if Germany doesn’t fund further EU bail-out and the PIGS et al bubble and hiss, and the EU struggles even more economically, what does Moodys do?

It would appear the EU and Germany could be in a real Catch 22 – Damned if you Do, Damned if you don’t.

This is probably the price they are all paying for the PIGS deflationary effect on the EURO.......................................................

..........................And more importantly the effect of Germany Inflating the EURO and therefore deflating the PIGS.

...................... Enjoy the Catch ....................CATCH 22

Andrew D Turner (adt) (occasionally)

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There are plenty of comments about iphone sales and their timing, but does it really matter if you believe in Apples’ position in the information technology and electronic device world. It’s probably also worth taking a quick look at valuation. 

Ex cash of $123B (and debt) the Apple Core is worth approximately $400B. Current Market Cap is $562B.

However, the relevance of the cash is probably greatest in terms of dividend capacity, unless Apple becomes more acquisitive......unlikely. In any other regard maybe someone would look at the cash and see Apple as a target........unlikely. Although maybe a Government with trillions of dollars in debt would look to issue bonds to fund an Apple acquisition and use the net cash to make some interest or principal repayments or create some sort of fiscal stimulus.

More likely it will form the basis of funding for Apples’ erstwhile litigation...........and dividends to stockholders – the ordinary ones’ of which are any economy’s greatest asset.

Additionally one can look at the earnings ex the cash. Ex net cash which would be generating net interest to Apple of around $2B pa (maybe more), the stock is on a current year PE of ≥15x.

In the absence of further product development, which is probably occurring with gusto anyway (Apple TV..........) Apple stock price outlook would appear linked to economic (EU) issues and iphone and ipad evolution and their market shares.

Andrew D Turner  (adt)  (occasionally)

Acquisitions, Sex, CEO's & Strategic Debacles  (Sep 2011)

Hewlett Packard - What an Amazing Blow-Up!

After a series of acquisitions across security, smart-phones, operating systems etc, not to mention new product (tablet) launch, which put hp in a position to move forward and evolve into something appropriate to the current decade, inclusive of something like Apple, hp has thrown its emerging strategy out with a sex scandal and obviously completely lost its way.

Like many US multi nationals hp was sitting on oodles of cash and looking for uses for it. Sadly for hp the cash, given the change in CEO and loss of direction, has pretty much just burnt a hole in its pocket.

The strategic direction now appears to be non-existent.

Notably some analysts in the US called the stock and the Groups strategic meltdown correctly around the change in CEO, and from double the current share price.

I'm sure hp would welcome all suggestions.



Political Risk - Egypt & Saudi Arabia    (Jan 29 2011)

Endeavoring to get into context the emerging political risk in several Arab countries;

There is clearly risk emerging for financial markets and it has particularly been linked to the US and the US currency, if not the broader financial system. I find the risk however to be somewhat muted relative to previous risks that have emerged around Arab concerns, and in reality.

I can see that there will be a fear factor and risk premium apply and I can see risks say with oil and maybe fears of potential supply disruptions. But unless I am mistaken, it is not as if there is a threat of political risk extending beyond certain Arab borders and beyond what we understand already of terrorist elements located elsewhere. That is, there is civil unrest contained within certain Arab countries. I guess when it comes to the words - "Arab countries", "Arab politics", "unrest" and "violence", markets shake a little, which is understandable, but.............!

On a best case scale, if the upshot is political reform toward increased democracy through some Arab countries, what is the risk?

I can also see that equities markets held up for a lot longer than I would have expected - Dec-Jan, with the help of Fed liquidity perhaps, which I rate as purely liquidity with little effect on the real economy in the short to medium term, although there is the "wealth effect". That is, it is basically cash, or promised cash looking to find a home - most likely in speculative assets. A strong market protective mechanism across forex, fixed interest, equities and maybe even property markets, at a time when some political and market nervousness pervaded - eg. CNY-USD exchange rate. To cut a long story short, markets may be looking for any reason to sell-off a little.

Tags: Market StrategyMarket Risk


Global Financial Institutions Tax?        (Nov 10, 2009)

Global Financial Institutions Tax?

In the last 12 months Banks and Financial Institutions have been given the earth, only to sit on the funds, trade markets and create market, commodity and stock volatility and increase the cost of capital. In fact they have increased the cost of capital through both not lending and through financial market trading.

 Why shouldn’t they be taxed further?

The appropriate tax of course would be additional tax on their Global Financial Markets Trading Profits. Exactly the source of the current cost to the economy - perhaps reflected in delayed private sector recovery - and the cost to corporate capital. By way of introduction it could be perhaps a Large Scale Financial Markets Transaction Tax or a Trading As Principal Tax.

It is no doubt a good thing that we have a healthy financial system and healthy financial institutions, and they needed propping up. But in all reality they have no more right to government aid and capital (taxpayers capital) than any other corporate, yet they have hogged a lot of recovery aid. Furthermore, they debatably caused the crisis that brought about the layers upon layers of aid driven government debt through their irresponsible securitisation, derivates, trading and in some cases lending (inordinate loan to valuation) activity. I say debatably, but I believe there is no doubt they are the root of the recent financial system and economic evils, not Central Banks as some would have us believe. Central Banks set conditions, Financial Institutions and other Corporates react to these conditions.................................................not always in the right way.

There has been a severe lack of flow on lending, following dollops of government aid around the world. This has come in many forms including Deposit Guarantees. Yet, many erstwhile projects have had to resort to raising equity capital against underpriced share prices and therefore at unduly expensive cost of capital, or they have seen corporate restructures, de-listing and at the extreme bankruptcy. I can nominate projects across Copper and Gold Mining, Rare Earth Mining, Renewable Energies and Agriculture and Food Processing, to name but a few, that failed to gain bank finance in 2009.

While on the one hand it would seem unreasonable to broadly tax entities that have just started breathing after delivery of significant food parcels, some are breathing very well and many are taking the opportunity to trade markets and take easy Global Financial Market Profits rather than do what banks are meant to do. That is lend and act as an intermediary between saver and borrower, preferably in the Real Productive Economy and not the Speculative Economy. Many banks can afford some sort of tax and morally, even though for example in the US funds are being repaid by banks to government, the taxpayer decision to prop them up, when many were irresponsible and contributed to the financial crisis, deserves some sort of thankyou if you like.

Certainly the issue from here is not further aid or stimulus to banks, although there would appear likely further write-offs / losses – derivates and lending related. It is Private Sector recovery eventually taking over from Government monetary and fiscal stimulus. Financial institutions are of course important in this process. To date they have not really responded, rather remaining in the speculative, easy money domain. Perhaps a Global Financial Markets Trading Profits Tax or where decipherable – Trading As Principal Tax, would be a way of shifting Financial Institution focus away from Speculation and onto the Real Economy and lending for Real Projects, while at the same time saying thankyou to governments and taxpayers for saving their skins.

It would appear that banks have gone from one extreme to another. Finance anything that moves in order to propel asset prices and create even more leverage, to, are we a bank? Are we supposed to lend? Oh, is that what banks do.

Goldman Sachs, which is now of course a Money Centre / Trading Bank, as opposed to its previous Investment Bank status, and which is one of the higher generators of Trading Profits in the world, would appear to have made some response – in the US – having apparently recently financed a shopping centre. Well Commercial Real Estate finance is fine. What about putting up a Parking Lot as well? You never know what you’ve got until its ....................... So Americans will be able to shop with limited advancements in the means of production required to create employment, income growth, preferably export income, and consumption.

Tax their profligate As Principal Trading Profits. And in so doing help reduce government deficits and debt and reduce financial market volatility and the cost of capital. Maybe additionally governments can look even more to lend to or form equity partnerships with the private sector through Development Corporation style entities, on relevant projects, thereby replacing or crowding out banks. In some countries I guess this is already in train through the significant bank equity governments’ have taken. Maybe government ownership should be retained and grown, or at least not relinquished. One hopes lending policy can be influenced at least in the near future. And there are many relevant projects such as Mining, Renewable Energies, Electricity Generation and Smart Grid utilising Renewable Energies, Rare Earths Mining and Processing, Products and Manufacturing Industries utilising Rare Earths and / or Renewable Energies, and Food.

 Tags: GSBanksGlobal Politics

Andrew D Turner


Nov 10, 2009

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